Let's talk about the Amer Sports IPO and China

A few weeks ago, Amer Sports announced that they were going public on the New York Stock Exchange. The company, which owns iconic outdoor brands like Arc'teryx, Salomon, Atomic, Armada, Wilson, and more, hoped to raise approximately $1.6B in their initial public offering.

Naturally, I was curious as to the underlying financials and some of the strategy here so I read most of the lengthy F-1 filing. The filing highlights growth metrics, associations with iconic athletes like Mikaela Shiffrin, Courtney Dauwalter, Chris Benchetler, and other strategic strengths.

A few tidbits:

• Over 60% of Salomon’s revenue for 2022 came from footwear
• Arc’teryx continues to grow, increasing its revenues to $941.2 million in the nine months ended Sept. 30, compared with $569.4 million a year earlier
• 30/70 split D2C vs wholesale. D2C is growing significantly and they’re putting a continued focus on owned retail experiences.
• Still looks like pretty big net losses (over $200M/year), but margins are moving in the right direction

There are plenty of interesting things to note, but there was one word that kept popping up over and over.
China. 182 times.

China's growing outdoor economy

China has seen rapid growth in their outdoor industry over the last several years. Much like North America, there’s been a surge in participation post-pandemic. This growth is driven primarily by millennials and Gen Z – accounting for 85.6% of all participants. “The total value of China's outdoor sports industry is expected to surpass 3 trillion RMB (approximately 410.8 billion) by 2025” (Jing Daily). From January to October 2023, there has been a surge of over 100% in daily active users partaking in outdoor activities, and companies like social platform Xiohongshu are tapping into this growth with campaigns and outdoor festivals.

Where does Amer Sports come in?

Although Amer Sports was founded in Finland, in December 2018 it was acquired by an investor consortium headlined by Anta Sports, Tencent and Anamered Investments Inc., an entity affiliated with Chip Wilson (the founder of Lululemon). Based in China, Anta is the world’s largest sports equipment company by revenue and the third-largest manufacturer of sporting goods overall, behind Nike and Adidas.

This new ownership brought new strategic plans and opportunities for Amer Sports brands to make inroads in China. The F-1 filing highlights their strategic focus in the region, saying “Our execution in Greater China has successfully increased our percentage of total revenue derived from the region from 8.3% in 2020 to 14.8%, or $523.8 million, in 2022, and up to 19.4% for the nine months ended September 30, 2023 and we believe there is significant runway for growth in the region as we continue to roll-out retail locations across our brands and scale our e-commerce platform.”‍

Although there’s been growth across the entire Amer portfolio, Arc’teryx in particular found massive success as demand for premium luxury outdoor apparel has grown. Because of import fees, Arc’teryx commands even higher price points in China than they do in North America or Europe. That hasn’t deterred the fashion conscious – the number of Arc'teryx registered members in China has grown from 14,000 in 2018 to over 1.7 million as of September 2023. Xi Jinping, President of the People's Republic of China has been known to sport the brand as well. Of Arc’teryx $941M in total revenue for the first 9 months of 2023, a whopping $452M can be attributed to the Greater China region.

They're not the only ones

Amer isn’t the only brand to recognize the growth potential of new Chinese consumers. Hoka entered the Chinese market in 2017, and continues to push for more growth and retail presence there. Their latest annual report shares that  “We currently plan for most of [our] partner retail stores to be operated in international markets, with the largest number anticipated to be in China.” ‍

On Running (whose meteoric growth probably deserves a dedicated newsletter) has also had significant growth in China, “Their Asia-Pacific sales soared by 71.5% to US$47.3 million in the three months ending September 2022, and by 82% to US$122 million in the first nine months of 2023.” (Annual report)

Adidas Terrex opened a flagship store in Shanghai in 2021, but hasn’t seen the same levels of success as On or Hoka. Jacob Cooke of WPIC Marketing attributes this to a lack of relatable localization in their marketing and a reliance on generic or globally focused ad campaigns – versus a more tailored and community focused approach from On.

Are there concerns?

China has presented both a growth opportunity and a set of risks for Amer. Its growing consumer base has an appetite for outdoor gear and premium brands and is driving an increasing percentage of Amer revenues. The filing notes that “We believe our global capabilities and presence, especially within Greater China, positions us well to drive growth in the athletic apparel and athletic footwear markets globally.”

Some are concerned that while China presents growth opportunities, it can also be a crutch for lagging revenues in North America. Based on 2022 numbers, it seems that revenue growth in China accounts for a significant percentage of all growth – hiding softer projections for North America and Europe. There are also more high level challenges related to tying business to Chinese consumers, like a changing political climate and the possibilities of tariffs or global tensions that affect consumer behavior. Not to mention any issues that may arise with Chinese-based ownership and local business regulations.

What's next?

Due to investor concerns about reliance China, debt, and perhaps the fact that money raised from the IPO would primarily be spent to pay off existing debts, rather than being invested in the business, the Amer IPO price was set at $13 a share. This was meaningfully lower than their original price target of $15-16/share.

However, since beginning trading, Amer Sports (AS) has risen to approximately $16/share (at the time of publishing), indicating that some investors and analysts see China as more of an opportunity than a risk. With the growing success of Arc’teryx and Salomon, I’m sure we’ll see other brands try (with varying degrees of success) to tap into this market as well – but it may be hard to overcome the “home field” advantages unique to Amer Sports.

‍